I am a partner of Riser Adkisson LLP and licensed to practice law in Arizona, California, Nevada, Oklahoma and Texas. My practice is in the area of creditor-debtor law, and I am the author of books on asset protection and captive insurance. I have been an expert witness to the U.S. Senate Finance Committee, and am very active in the American Bar Association, and currently am the Chair of the Committee on Captive Insurance. I was also the collection attorney for the $20+ million judgment by the San Francisco Bay Guardian against the holding company of the Village Voice chain. I am serving as an American Bar Association adviser to the Uniform Law Commission's revisions of the Uniform Fraudulent Transfer Act and the new Series of Unimcorporated Business Entities Act.

Taking this opinion at face value, the lesson here is simple and commonsensical but is one that is often ignored by planners: Asset protection planning should rarely be undertaken in its own name or for that stated purpose.

If the Engineer here had not admitted that he put this structure in place for asset protection purposes, and to defeat the rights of future claimants who might sue him over soil studies gone bad, then the result might have been very different on this point.

There is rarely a need to announce to the world that something was done for asset protection purposes, to call something an “asset protection trust”, to send an “asset protection” engagement letter, or any of the like. Yet, bad planners and do-it-yourselfers do it every day.

To the contrary, asset protection planning should almost exclusively be undertaken for some other purpose than creditor planning. [fn. 2] Do it for estate or succession planning reasons, do it for general business or financial planning reasons, do it for health reasons, do it because you’re trying to look out for an heir, but don’t state that you’re doing it for creditor reasons.

Whatever is done for asset protection planning needs to do more than merely recite these words, but must reasonably work to accomplish these goals. Like tax shelters which only work when the tax benefits are “incidental” to the non-tax purposes of the transaction, asset protection planning is best done when the anti-creditor benefits are simply incidental (even if very effective) to the non-creditor purposes of the planning.

Had the Engineer heeded that simple advice, then he probably would not have suffered this ruling on these grounds. He probably would still have lost on other grounds, but stay with me here.

The practical truth is that the UFTA is poorly drafted. The Act is confusing to those of us who practice in the area regularly, and it can be easily misunderstood and misapplied by those courts which do not regularly face UFTA issues, i.e., non-bankruptcy courts.

The “future creditors” versus “present creditors” issue is among the most confusing UFTA issues. So, avoid creating fodder for litigation by giving creditors the chance to argue what amounts to a “transferred intent” argument — an improper intent to defeat the rights of Creditor A now, can be transferred to Creditor B who comes along later.

Simply put, purge the two words “asset protection” from your documents, and tell your clients never to mutter those words or write or e-mail or fax or say anything like they did planning in case creditors came along later. It can’t do any imaginable good, and (as here) it can certainly hurt. Even if you win later on appeal by arguing the technical merits of what “future creditors” really means (six figures in legal fees later) that was a dispute that was probably easily avoided in the first place by not creating evidence of intention to defeat the rights of creditors.

FN2. About the only place that one can safely mention that planning is being done for asset protection reasons in in the area of exemption planning, since exemptions by their very nature are meant to defeat the rights of creditors. But even then, in some states, one has to be wary of a “fraudulent conversion” claim, i.e., a claim that assets were wrongfully converted from non-exempt to exempt assets. The better practice is to just avoid the use of the term entirely whenever possible.

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